Clare Jim and Julie Zhu. By Xie Ju, Xie Yu.

HONG KONG/DANZHOU (China) – Last year’s opening of China Evergrande Group’s biggest artificial resort island was the realization of Hui Ka Yan’s ambitions. He had drawn a plan for the project and drafted it himself.

Evergrande now defaults to global bondholders. The former Communist Party secretary to the Hainan Island city, where Ocean Flower Island is built, is currently serving a life sentence. Danzhou city officials have also ordered the demolition of 39 towers of the project – approximately 3,900 homes on the island – due to environmental and construction violations.

Part of the flower-shaped, 2,000-acre project will be demolished. This would further exacerbate the problems of China’s once-top-selling developer. It is currently in deep debt of more than $300B and struggling to repay its creditors.

Two sources who had direct knowledge of island development and government documents related to this project show how work was done in disregard of environmental and zonal regulations for nearly a decade. The results eventually led regulators to scrutinize the works.

These two sources were very close to Hui’s thoughts and the project. They declined to name their names as they were not authorized to speak with the media.

Reuters could not determine the date or whether demolition would take place. Evergrande didn’t respond to Reuters inquiries for Hui or for comments.

Officials from Hainan Province and Danzhou local authorities, who have direct oversight over the project, didn’t respond to our requests for comment.

As China under Xi Jinping begins a sweeping regulatory crackdown, the country is cautionary for China’s property titans. This includes a clampdown on the freestylish segments of its private economy.

“What is happening in Hainan suggests local governments are tightening their grip on irregularities of property developers,” said Li Gen, CEO of Beijing BG Capital Management Ltd, a firm specialising in credit investment.

During a Reuters inspection in January, workers had surrounded the 39 buildings with blue-metal sheets. Ocean Flower’s 39 remaining under-construction residence buildings were standing as of Monday. Evergrande said that no other parts of the project would have been affected.

Local media reported that the demolition order was issued by the local government in December. It was based on illegal construction and other environmental violations.

GOVERNMENT SCUTINY

Ocean Flower Island was built in the formerly rural part of China’s southernmost Hainan region. The island is said to have been inspired by Dubai’s iconic palm-shaped artificial Islands.

One source said that workers had sent Hui (63) weekly drone footage during the construction of the project to monitor progress.

Hui was Asia’s most wealthy man in 2017 The former steel technie could still be seen in Beijing, mingling at the celebration marking the 100th birthday of the Chinese Communist Party.

Since late last year, Chinese officials have been looking into the assets of the company and Hui to see if anything is hidden. The central bank blames Evergrande for its problems.

Evergrande was now in the middle of China’s liquidity crisis in the property sector and pushed for the resort island. However, environmental concerns arose, particularly over land reclamation which caused damage to the ecology.

THE DREAM PROJECT

Since 2017, Evergrande has been subject to environmental penalties by Danzhou for reclaiming seashore land in locations that it was not allowed. According to a document published on the site, 23 December 2020.

According to the Danzhou government document, Evergrande also built the 39 residences using a tourist infrastructure plan. This plan could not have been used for residential development without approval from government.

The Danzhou authorities asked Evergrande to improve the plan. However, there were no particular requirements. According to the Hainan provincial government, Evergrande had a plan for the transformation of the 39 buildings into office buildings, hotels, and dormitories.

Reuters couldn’t determine whether the plan had been approved by any regulatory body before the Danzhou authorities issued their December demolition order.

A 2020 Danzhou government document stated that local authorities permitted construction to continue even though environmental violations were present, but did not elaborate on why.

An early 2019 Hainan province document posted online by the government showed that Danzhou had imposed $34 million in fines on the project. This document shows these fines had been paid. Reuters couldn’t determine whether any additional penalties had been imposed.

Evergrande did not comment publicly about the fines but the developer responded to the demolition order in Jan. 3, WeChat posting from Ocean Flower Island, stating that the company had “firmly and actively” addressed the environmental problems since 2017.

According to the 2019 Hainan province government document, Danzhou also illegally divided parcels of land to facilitate land reclamation review. 36 projects were approved in just two days by Ocean Flower Island.

The Danzhou City Government did not respond when we asked for comments.

ENVIRONMENTAL DAMAGE

In 2020, Evergrande’s financial woes became more public. The Communist Party’s anti-graft watchdog the Central Commission for Discipline Inspection, (CCDI) and the Ministry of Ecology and Environment started to examine Ocean Flower Island. These documents were taken from both the provincial and central governments.

Reuters did not reach out to China’s Ministry of Ecology and Environment for comment. The number on the website for CCDI did not allow them to reach out. CCDI does not provide an email address.

Zhang Qi (ex-party secretary to Danzhou) was sentenced to life imprisonment for receiving bribes and illegally acquiring protected land from business owners in the latter part of 2020. This is according to an article that CCDI published early in 2021.

CCDI’s article on Ocean Flower Island identified Zhang as someone who illegally facilitated it to “gain political capital”, but didn’t say whether he took bribes.

Zhang pleaded guilty in the corruption case and gave all bribes back to authorities. This was reported by state news agency Xinhua late 2020.

Chinese courts rarely release documents containing judgments on corruption to the general public. Zhang’s lawyer has not been identified. Zhang couldn’t be reached to comment.

CCDI found Ocean Flower’s construction had also caused large-scale permanent damage to coral reefs, white lips shells, and white lip.